WallStreetBets: the effect is over?

Exactly one year ago, in January 2021, a real mania broke out for WallStreetBets whose actions had a disruptive effect on financial markets.

WallStreetBets and the GameStop case

WallStreetBets is a huge community on Reddit dedicated to investments in financial markets. Its huge size, more than 11 million and a half of subscribers to the subreddit, has allowed the planning of real pump campaigns, among which the most famous was surely the one on the GameStop stock. 

The trend of the last months of the GameStop (GME) stock price reveals that maybe the game is broken. 

On January 12, 2021, the GME stock price was around $20, but thanks mainly to the organized pump by WallStreetBets users, eighteen days later it reached a peak at over $480. 

On 4 February the price had already fallen to just over $50, but thanks to another pump it briefly returned to above $340 on 10 March. After another strong descent, it managed to rise again above $300 on 20 June, but since then it has never been able to return to these levels. 

On the contrary, starting from the end of November, a long decline began that brought the price back around the current $100. 

WallStreetBets, pump effect exhausted

As the Wall Street Journal reports, it seems that the strength of WallStreetBets has now been exhausted. 

The problem is that these organized pumps are almost always, inevitably, followed by real dumps that cause those who entered after the start of the pump to lose money. As a result of making investors lose money, sooner or later they get fed up. 

In particular, the Wall Street Journal reveals that the WallStreetBets community seems to have somehow degenerated into a bunch of pure bettors from which the more experienced users have now fled. 

However, it should be pointed out that the financial market itself has also changed, since the long phase of euphoria due to the Fed’s ultra-expansive policy has ended, and it has been replaced by a phase of risk aversion due to the fear of a future restrictive monetary policy. 

However, within the community, there is still talk of possible investments in securities that could earn a lot of money in a short time. 

Upcoming, unlikely, pumps

At the moment, for example, there seems to be a lot of talk about Peloton Interactive (PTON), Virgin Galactic (SPCE), and Canoo (GOEV), for whose prices some analysts expect gains of between 90% and 175%. It has to be said, however, that if WallStreetBets’ golden days are truly over, such gains may ultimately prove decidedly unlikely. 

In January 2021 a series of macro events had added up creating a very particular situation, difficult to replicate, and certainly very different from the current one. WallStreetBets did nothing but make the most of that situation as long as it was possible.